The gut reaction to the release of the belated Weekly Petroleum Status Report yesterday afternoon was somewhat perplexing. Every major category registered drawdowns: crude oil stocks depleted by 2.5 million bbls, gasoline inventories declined by 2.3 million bbls and distillate stockpiles fell by 1.7 million bbls. Even with the ’other product’ category recording an increase of 6.3 million bbls total commercial inventories failed to build, bringing 5 successive weekly growth to an abrupt end. The prompt sell-off is even more head-scratching as total products supplied by refiners, the proxy for weekly demand popped above 21 mbpd.

Maybe this sudden weakness was the function of a speedy bout of irresistible long liquidation, however, amends were made later, and the oil complex ultimately finished the day in the black. Financial data also helped the recovery from the intra-day dip. The Swiss National Bank decreased the cost of borrowing for the second time this year, the Norwegian central bank left rates unchanged and will probably start cutting in 2025 and the BoE also decided not to lower interest rates but hinted at an August reduction provided inflation remains under control. Although initial jobless claims in the US were down last week, the number of people on benefits rolls are still very close to the highest level since January, indicating a loosening labour market and enhancing the prospects of a September Fed rate cut. The US stock draws underpin decent summer demand and conditions for lowering rates in major economic hubs are ripe. For now, investors remain sanguine about the 2H outlook and there is nothing that would suggest that the target level of just above $90/bbl basis Brent will not be seriously challenged as the second half of the year fast approaches.

Sustained Reliance on Fossil Fuel

The biggest headache when predicting the oil balance for coming years and decades is to accurately estimate the consumption of crude oil and products refined from it. It is a seemingly impossible undertaking as exhibited in widely swinging prognoses. The two extremities of the spectrum are represented by OPEC, an ardent advocate of future oil demand and the IEA, a faithful proponent of the increasing role renewables are playing in the energy mix. Narrowing this chasm is implausible any time soon and taking sides carries the danger of being accused of bias. Yet, it is easy to resist everything but temptation and after digesting the 2023 findings of the latest Statistical Review of World Energy prepared by the professional membership body for the world of energy, the Energy Institute, and which replaced BP’S flagship annual publication, one cannot help but conclude that the need to use fossil fuel and oil, at least in the medium-term, is here to stay.

The key takeaways of the report are as follows: the transition from fossil fuel to renewables is slow. In 2023, the increase in global temperature approached 1.5°C above pre-industrial levels making it the hottest year on record. Geopolitical disruptions played an important part in shaping the energy landscape. Consumption of fossil fuel and emissions reached levels never seen before. Fossil fuel is still the dominant component of the energy mix, responsible for more than 80% of the total use. On the bright side, thanks to the growing prominence of wind and solar energy, renewable energy generation was also at unseen levels last year. Demand for fossil fuel is peaking in advanced economies but keeps growing in the Global South because of economic developments.

Total primary energy consumption rose 2% in 2023 and exceeded the level seen in 2019, the year before the health crisis devastated the global economy. Renewable energy made up almost 15% or the total last year or over 18% when nuclear is included. It leaves fossil fuel’s share at 81.5%, a slight year-on-year decline. Global oil production and consumption were both at their highest level. Coal production and consumption also scaled record highs with China being the biggest consumer. Electricity generation was up 2%. Coal remained the dominant fuel with renewables accounting for 30% of the whole and China being responsible for more than 50% of it. In summary, global primary energy consumption reached a new record for the second consecutive year, with non-OECD countries dominating both the share and annual growth rates. Fossil fuels account for 82% of the energy mix. In 2023, the Global South accounted for 56% of total energy consumed, growing twice the global average rate of 2%. The Asia Pacific region was responsible for 85% of the Global South demand but energy consumption in Africa declined.

As for our segment of the energy market, last year was characterized by rising consumption and production. Oil demand exceeded 100 mbpd for the first time ever, the report points out. Gasoline, distillate and aviation fuel demand are surpassing the 2019 levels. On the production side, the US remained the largest supplier of crude oil with an annual expansion of 8% and the growth in Southern and Central America is also noteworthy. Total production stood at 96.258 mbpd excluding biomass, synthetic derivatives of coal and natural gas. China overtook the US in terms of refining capacity as its maximum throughput advanced to 18.484 mbpd in 2023 versus 18.429 mbpd of the US.

Total liquids consumption was up 2.8% in 2023 compared to a 1.2% annual average between 2013 and 2023. Demand for liquids increased 0.2% in 2023 and was flat in the 2013-2023 period in OECD countries. By contrast, consumption grew 5% and 2.2% respectively in the developing part of the world. Worldwide oil production rose 1.1% on average in the above-mentioned 10 years, which is entirely the result of non-OPEC growth since production by OPEC members declined 0.2% per annum.

And the conclusion? Energy and its reliable supply are the very foundations of social, political and economic stability and security. Transition, whilst undeniably and irreversibly moves forward, it does so slower than a sloth. Its trajectory is greatly influenced by the prices and availability of different energy resources. No country would voluntarily forego the advantage cheap energy offers. As long as oil remains a strong contender in the energy mix, demand for it will likely hold up well, probably better than the IEA currently projects.
 

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